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Contingencies, your safety net
When you start negotiating a home purchase or sale, you should include standard contingencies, or conditions, in the purchase contract.
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A purchase contract primer
It's important to ask questions when you're drafting the terms and conditions of your offer in the purchase contract, whether you do it yourself or with an agent or attorney.
Not sure about contingencies? Wondering about fixtures? Just ask. You don't have to become a real estate expert to craft a good contract, but the more you know about how a contract works, the more effectively you can tailor it to your specifications. You'll also be a much savvier negotiator when the seller comes back with a counteroffer.
Read the Fine (Pre)print
Many residential purchase contracts include standard real estate boilerplate text. Many firms, in fact, use preprinted forms. While preprinted or computerized forms have improved efficiency, they sometimes do so at the expense of the buyer. It pays to get a copy early on of the contract you're likely to use. Read it and don't hesitate to rewrite or delete anything you don't like. If you plan to work with a preprint, get a copy when you start looking for a house and highlight terms or conditions you like or may want to modify when you make an offer. Circle what you dislike, too. This is a good way to catch buyer-unfriendly fine print. After that, you're ready to sit down and write an offer.
Elements Every Contract Should Have
Whether you write your own contract or using a preprinted form, you should always include between 10 and 20 basic elements, such as the address of the property, contingencies, financing terms, purchase price, closing date and others. Also include:
ü Time to respond.
Specify how much time the seller has to answer your offer. Contingencies should also include time limits.
ü Seller's responsibilities.
Include passing clear title to the property, maintaining the property in its present condition until closing, making any agreed-upon repairs and delivering the property clean and free of personal possessions and debris.
ü Disposition of deposit.
Specify who gets your good-faith deposit if the contract is terminated. This can vary. In cases such as failure to get loan approval, the seller should get the deposit. In the case of an unsatisfactory home inspection, the buyer should get the deposit.
ü What stays.
Specify fixtures and personal property to be included in the sale. Make a detailed list. Verbal agreements aren't binding.
ü Terms of withdrawal.
Spell out conditions that allow you or the seller to withdraw from the agreement. You may not think you'll need them, but it's good protection.
ü Final walk-through.
This is your chance to make sure the house is in order just before you close. Your contract should specify the seller's responsibility if the walk-through is unsatisfactory.
ü Problem solving.
As much as possible, your purchase contract should help you and the seller resolve any issues that crop up. For example, if your lender only guarantees your locked-in interest rate for 60 days and the seller isn't able to close in that time, one solution is to include a provision in your contract that sets a firm closing date and allows the seller to rent back to you at a cost equal to your monthly payment.
ü Sellers' Contingencies
Occasionally, sellers make the sale of their house contingent on their purchase of another house. If the sellers fail to complete the purchase of the other house, they can cancel the sale. It's much less risky for you to enter into contract with sellers who are already in contract to buy another home.
Be sure to include a kick-out clause in your purchase contract that allows you to withdraw from the contract at some point. A kick-out clause can be structured in several ways. You may give the sellers a time limit to find another home, after which you can void the contract at your option. You may also structure the kick-out clause to let you withdraw from the contract any time until the sellers notify you that they have found another house and will remove their contingency for finding a replacement home. If the sellers' house has been on the market a long time with no offers, you may be able to convince them to waive their contingency.
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